Fee-for-Service

Fee-for-service is the payment model where a provider bills separately for each service performed: each visit, each test, each procedure, each supply. It is how most of American healthcare has been paid for since the beginning, and it is still the dominant model for commercial insurance.

The strength of fee-for-service is that it's simple to understand: do a thing, bill a code, get paid. The weakness is that it rewards doing more things. A hospital stay under fee-for-service can generate hundreds of separate line items, and the incentive at every step runs toward the extra scan, the extra day, the extra consult. Medicare's own data has shown that regions with more fee-for-service spending do not show better outcomes. Alternatives have grown up in response: capitation pays a flat amount per member, bundled prices pay one amount for a whole episode of care, and membership primary care charges a monthly fee instead of per-visit fees. Most surgery-center cash prices are bundles precisely because a single number is what a patient can actually plan around.

The takeaway: when you're quoted a fee-for-service price, ask what is not included. The facility fee, the surgeon, the anesthesia, the pathology, and the follow-up visits may each be their own bill.